Tax in a digital world

As tax moves up the agenda, the tax function is becoming more visible at the decision-making table. Oil and gas executives are increasingly looking to their tax leaders to be more strategic. They want to see various tax scenarios as they plan their business strategy. They expect their tax leaders to bring them ideas and opportunities to help drive growth. They want to know their tax professionals are on top of changes in the international tax environment. They want their tax professionals to protect the tax reputation of their organization.

Like other parts of the business, tax is under pressure to move faster and with more agility. Tax professionals are being asked to cover more ground – they need to understand the nuances of ESG reporting, the impact of digital taxes and the complexities of retail taxes, for example. They also need to be increasingly efficient, effective and capable in their compliance and reporting activities. Yet few are seeing a commensurate increase in budgets or headcounts to handle the expanded scope. And this type of Do-More-With-Less mantra does little to inspire transformation.

This is at a time when the urgency of tax transformation is becoming critical. Generally speaking, tax technology infrastructure at most oil and gas companies is due for an overhaul. Excel spreadsheets are everywhere. Data from different ERP systems don’t always correlate. A recent survey by KPMG International finds that 64 percent of Chief Technology Officers say their tax personnel spend more time data collecting and getting data ready than performing tax analytics.^[1] Even when tax data is available, only some organizations use it strategically.

Most oil and gas tax functions now find themselves at a pinch point. The business expects them to be more strategic, efficient and capable. But tax functions need more technology tools, capability and capacity to deliver on those expectations. Digital transformation is the only solution.

Digital transformation offers tax functions a clear path to strategic value delivery. It allows existing processes to be re-engineered with fewer manual touchpoints and greater agility. It introduces self-service functions, automation and machine learning, freeing human resources for more strategic and value-adding tasks. It offers opportunities to ‘tax sensitize’ data across siloes to deliver a single source of the truth. It creates room for new operating and sourcing models.

Digital transformation can enable oil and gas tax functions to automate the manual and repetitive, offload the tactical, take on the strategic, and deliver real value. There are a few other options given the expectations for the tax function going forward.

The drivers of digital transformation for the tax function are everywhere – greater demand from the business, rapidly changing regulations, heightened tax authority expectations, efficiency objectives, talent shortages – the list goes on. But we expect what will ultimately force tax functions to transform will be the need for more reliable and accessible real-time data.

The following 18 months will see tax functions looking for – and being asked for – increasing amounts of data. Internally, the pressure for more forward-looking tax scenarios and insights is forcing tax leaders to reassess the freshness and accessibility of their data. They want to provide the business with accurate and strategic forecasts, but they can’t always trust the data they receive from multiple systems.

Consider the data requirements for applying for various sustainability-linked tax credits and incentives. That will require tax functions to access new data sources that may or may not currently exist. Where it is available, it is likely spread across various processes, systems and assets in different formats and degrees of completeness and transparency. Some of it may need to be lifted from third-party service providers or Joint Ventures.

The external pressure for better and more frequent data is also pushing tax functions to a crisis point. Tax authorities are moving towards real-time tax reporting, requiring tax functions to be much more confident about their data. At the same time, stakeholders and investors are pushing for greater tax transparency as part of the ESG agenda (14 percent of energy sector tax functions say they already publicly disclose their tax information, and 32 percent say they plan to in the future).^[2]

Perhaps not surprisingly, tax leaders say they will need to manage their data better if they want to operate effectively in the new normal. Almost eight-in-ten say they will require data management, extract, load and transformation (ETL) tools, and 60 percent say they need ERP, source systems and data warehouses to operate more effectively.^[3]

The data also suggests that tax leaders are currently working to standardize their processes and implement new technology tools to lessen the burden of data management on their function.^[4]

Over the next 18 months, the demand for data will become a clarion call for tax and business leaders in the oil and gas sector to invest in digital tax transformation.

Securing investment capital and permission to redesign and transform the tax function is not easy and will take work. Tax and finance leaders will need to put significant effort into moving this up the investment agenda for the organization.

Start by focusing on small wins that demonstrate considerable value and lead towards a more digital tax operating model. This will partly come down to building the business case for investment. A business case should include quantifiable benefits (such as time savings, cost reduction and energy use), qualitative benefits (like scenario planning capabilities, better forecasting and more strategic advice to the business) and risk mitigation benefits (including financial risk, governance risk or reputational risk).

Education will also be critical. The tax function will need to understand the needs of the business and be able to align its investment requests to specific business outcomes. At the same time, the business will need to gain a greater appreciation for how a more strategic and digitized tax function can benefit the business. Similarly, the tax and technology functions will also need to focus more on internal partnering, to smooth implementation and find opportunities for alignment on investment requests.

At the same time, the increasing dependence on data analytics tools and enterprise systems will require higher technical proficiency at all levels of the tax function. And organizations are competing to attract and retain a limited number of high-skilled tax professionals. One option is to increase the training and upskilling of current tax employees (an activity 58 percent of Chief Tax Officers say they are doing).^[5] Another is to look to outsource or co-source some activities (45 percent of CTOs say they rely on outside tax advisers).^[6]

Ultimately, building your strategy around a clear vision for a digital tax function is key. If it aligns with the needs of the business and can deliver some quick wins, you should be able to build the right momentum to achieve a real and sustainable tax digital transformation.

Additional personnel and tax technology topped the list for tax leaders when asked where they would invest if they had an additional budget.

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